Key provisions of the Bill

nthe abolition of the Wheat
Export Accreditation Scheme 2008. Repeal of the enabling provisions in the
principal Act causes the legislative instrument to automatically lapse;[1]

nwinding up Wheat
Export Australia (WEA) and transferring certain responsibilities to the
Department of Agriculture, Fisheries and Forestry;

ncreating a new Wheat
Industry Special Account (under the control of the Minister) for unspent funds
gathered through industry levies and service fees (no longer required to fund
WEA); and

nremoving the ‘access
test’ rules, conditional upon a voluntary code of conduct being agreed to and
approved by the Minister.

Abolition of the Wheat Export Accreditation Scheme 2008, the Wheat
Export Charge, the Special Account and Wheat Exports Australia

2.3Currently, WEA is responsible for the accreditation of bulk wheat
exporters. In general terms, eligibility for accreditation is based upon
whether a company is ‘fit and proper’ (depending on whether the company or its
executive officers have breached laws or committed offences); passing the
‘access test’; and providing WEA with an annual export report and an annual
compliance report.[2]

2.4As at 30 June 2011, twenty-six companies were accredited bulk wheat
exporters in accordance with the Wheat Export Accreditation Scheme 2008
(the Scheme).[3] WEA’s annual report
explains the purpose of the Scheme:

The objective of WEA is to regulate the export of bulk wheat
(i.e. other than in bags and containers) from Australia through the [Scheme] and
to inform Government, growers, accredited bulk wheat exporters and industry stakeholders
of outcomes ... The wheat marketing arrangements under the Scheme are intended
to increase competition in the bulk wheat export market. The arrangements
provide for WEA to accredit exporters which meet the specified ‘fit and proper’
criteria and for WEA to exercise monitoring and enforcement powers to ensure
that a competitive wheat marketing regime is achieved and maintained.[4]

2.5WEA’s accreditation responsibilities are funded through the Wheat Export
Charge (WEC) and a cost recovery fee regime. The Primary Industries
(Customs) Charges Regulations 2000 current impose a rate of charge of
22 cents per tonne of wheat (‘chargeable wheat’).[5]
Exporters must also lodge a monthly return stating the total amount of wheat
exported and the total amount of charge payable for the wheat.[6]
An application to grant accreditation as a bulk wheat exporter presently costs
$13,299,[7] which has incidentally ‘proved
to be insufficient to cover actual costs,’ according to WEA [8]
Proceeds are then credited to the WEA Special Account, which WEA uses to fund
its work (principal Act clause 59 and 60).

2.6If the Bill is passed, the Scheme would cease, along with WEA’s accreditation
function. As such, the need to raise revenue through fees and charges also becomes
unnecessary; the explanatory memorandum indicates that the Wheat Export Charge
will be abolished ‘through amending or repealing’ the above-mentioned regulations.[9]
In addition, the Bill would repeal provisions relating to the WEA Special
Account (Schedule 2 clause 15), although its funds will be transferred to a new
account of a similar nature.

2.7The existing WEA Special Account will be ‘continued in existence as the Wheat
Industry Special Account’ to fund measures or programs ‘to assist the wheat
export industry or a sector of that industry’ subject to the Minister’s
approval (Schedule 2 clause 15). The account will be administered by DAFF in
place of WEA (Schedule 2 clause 36).

2.8Divisions 1 to 5 of Part 5 of the Principal Act, pertaining to WEA’s
establishment, functions, powers and liabilities would be repealed (Schedule 2
clause 14). Schedule 2 of the Bill, which would commence on 1 January 2013,
will have the effect of winding up WEA on 31 December 2012. Clauses 23 to 39
of Schedule 2 contain transitional provisions for succession purposes, such as
in relation to WEA’s assets and liabilities.[10]

The ‘access test’ and code of conduct

2.9Currently, eligibility for accreditation as a bulk wheat exporter, in
the case of a company or associated entity that is the provider of one or more
port terminal services (as defined[11]), is inter alia
dependent upon passing the ‘access test’ to the satisfaction of WEA (principal
Act clause 13(e)). Part 6 of the principal Act provides that a decision by WEA
regarding accreditation may be reviewed by the Administrative Appeals
Tribunal. The current access test would be repealed and replaced with a new
‘access test’, with revised but essentially similar rules.

2.10The purpose of the current and revised ‘access test’ is outlined in the
Bill’s explanatory memorandum:

This section is intended to ensure that owners, operators or
controllers of port terminal facilities that also export bulk wheat, or have
associated entities that do, provide fair and transparent access to their
facilities to other exporters. The access test aims to avoid regional
monopolies unfairly controlling infrastructure necessary to export wheat in
bulk quantities, to the detriment of other bulk wheat exporters. All bulk wheat
exporters should have access to these facilities while allowing the operators
of the facility to function in a commercial environment.[12]

2.11The revised access test will operate until at least 1 October 2014.
After this date, a code of conduct (if approved by the Minister) will take the
place of the revised access test and the entire Act would be repealed pursuant
to Schedule 3. However, repeal of the Act, along with the revised access test,
will not occur unless a code of conduct is approved.

2.12A notable aspect of the revised access test relates to enforcement
mechanisms. Whereas the current access test is enforced passively through
denial of accreditation (principal Act clause 13(1)(e)), the revised access
test relies upon active enforcement via the Customs Act 1901. Bulk wheat
exports made whilst an exporter is in breach of the access test could be deemed
‘prohibited exports’ and, under the Customs Act 1901, could become liable
to forfeiture if an attempt to export them is made.[13]
However, a range of lesser regulatory interventions would presumably be
pursued before forfeiture was considered, remaining as a last resort.

2.13The Bill stipulates the overall terms that a voluntary code of conduct
would need to address and satisfy, as follows (schedule 1 clause 12):

(1) The Minister may, by notice published in the Gazette,
approve a code of conduct for the purposes of this section.

(2) The Minister must not approve a code of conduct under subsection
(1) unless the Minister is satisfied that the code of conduct:

(a) deals with the fair and transparent provision to wheat exporters
of access to port terminal services by the providers of port terminal services;
and

(c) is consistent with the operation of an efficient and
profitable wheat export marketing industry that supports the competitiveness of
all sectors through the supply chain; and

(d) is consistent with any guidelines made by the [Australian
Competition and Consumer Commission – ACCC] relating to voluntary industry
codes of conduct.

2.14Unless satisfied that the above criteria have been met, the Minister may
not proceed to approve the code of conduct (schedule 1 clause 12).

Changes to the special account

2.15Clauses 58 to 60 of the principal Act established a special account for
depositing fees and levies raised from the industry for the purpose of funding
WEA. The explanatory memorandum states that at 31 December 2012:

...the balance of the WEA special account will be transferred
to a new Wheat Industry Special Account to be administered by the Department of
Agriculture, Fisheries and Forestry.[14]

2.16The purpose of the new special account would be for ‘funding a measure
or program’ to ‘assist the wheat export industry, or a sector of that industry’
(schedule 2 clause 60). It is not currently clear how much money would be
transferred into the new special account.

Repeal of the whole Act

2.17The explanatory memorandum states that if the Minister approves the code,
‘the market will move to full deregulation’.[15] If the Minister has
approved a voluntary industry code of conduct covering grain export terminal
operators, by publishing notice in the Gazette, on or before
1 October 2014 (new clause 12),[16] the whole of the
principal Act will be repealed. Otherwise, the Act as amended by the Bill will
continue in force; albeit unless a future amendment is separately made to
change the timing of Schedule 3.

Background to the Bill

2.18Typically, 60% to 70% of Australian grown wheat is exported, mostly from
South Australia and Western Australia. Over the ten years prior to
2010-11, Australia has produced on average 20.3 million tonnes of wheat per
year. Together, Indonesia, Vietnam, South Korea, Japan and Yemen generally
account for 50% to 55% of Australia’s bulk wheat exports.[17]
Wheat is sold by grade. Most exported wheat is either Australian Premium White
(APW) or Australian Standard White (ASW).[18] Eventual uses for
Australian wheat include breads, cakes, biscuits, baked goods and noodles.[19]
According to Wheat Exports Australia (WEA):

Australian wheat is traditionally well regarded in
international markets because it typically has very low screenings, low moisture
content and produces white flour. Generally these characteristics produce a
higher yield of flour than the red-grained wheats of the northern hemisphere
which typically have a higher moisture content.[20]

2.19Regarding the future for Australian wheat, the Australian Bureau of
Agricultural and Resource Economics and Sciences (ABARES) March quarter
commodities outlook estimated:

nHigh rates of global
production will likely lead to a fall in average wheat prices in 2012-13;

nAustralian wheat
exports are forecast to ‘remain relatively high compared to historical
averages’, although export value is predicted to fall by 9 per cent;

nOver the medium-term,
‘Australian production of wheat is expected to increase 1 per cent per year
between 2012-13 and 2016-17 to around
26 million tonnes’ and ‘wheat exports are projected to remain around
20 million tonnes up to 2016-17’; and

nLastly, ABARES made
the general observation that trends for wheat plantation are dependent on
prices for other grain crops.[21]

2.20Until 2008, Australian wheat exports were handled though a ‘single desk’
arrangement, whereby wheat was centrally marketed and pooled for sale through
the Australian Wheat Board (AWB). This model was in place since 1948, though progressively
revised (such as by de-regulating the domestic market), and was intended to ensure
stable returns to growers. In 2008, the Wheat Marketing Act 1989 was
repealed and replaced with the Wheat Export Marketing Act 2008, which
partially de-regulated wheat exports. The Bill would amend the latter Act (the
principal Act) to gradually remove the last tenets of regulation in 2014.[22]
Dismantling of the ‘single desk’ model was the topic of much public debate as
the legislation proceeded through the Parliament during winter 2008.[23]

2.21In 2010, the Productivity Commission (PC) produced a report examining
the operation of Australia’s partially deregulated wheat export marketing
arrangements. Clause 89 of the principal Act required the review to commence
by 1 January 2010 and the report to be completed by 1 July 2010. The Productivity
Commission’s report recommended abolition of the Wheat Export Accreditation
Scheme 2008, Wheat Exports Australia and the Wheat Export Charge from 30
September 2011, discontinuation of the ‘access test’ from 30 September 2014
and, in its place, utilisation of general competition law and a voluntary code
of conduct.[24]

2.22The Government’s response accepted these recommendations in-principle,
with the exception of delaying the process by one year to 2012. The Government
proposed ‘a three-stage approach’, which it believed would be ‘a more effective
transition to full market deregulation’. The first stage involved changes to
the Wheat Export Accreditation Scheme 2008; the second and third stages –
which relate to WEA, the WEC, the ‘access test’ and developing a voluntary code
of conduct – are encapsulated in the Bill.[25]

2.23In anticipation of the forthcoming changes, two informal studies have
probed the views of Australia’s wheat buyers.

2.24Australian Grain Growers Ltd (Grain Growers) consulted with foreign buyers
to gauge their views in April 2011. Whilst the findings noted buyers have
reasons for valuing Australian wheat (better suited to certain end uses and having
low moisture content), areas of concern were found, including:

nconsistency of
supply, related to food security concerns;

nlevels of screening
required to detect foreign objects, ‘seen to be increasing’;

npreference for North
American wheat to make bread in Asia;

ninadequate crop
information;

nissues surrounding
grade and quality, ‘threatening the overall reputation of Australian wheat’ and
the lack of a single point of contact to direct complaints and concerns; and

ninsufficient
technical support to processors compared to that provided by the USA and
Canada.[26]

2.25In general, Grain Growers found that ‘across Asian and Middle-Eastern
markets Australian standards appear to be slipping.’[27]

2.26During September 2011, Wheat Exports Australia conducted a similar
process and reported its findings in the 2010-11 Report to Growers. Similar
themes were raised with WEA as were raised with Grain Growers:

nshipping and handling
costs and delays;

na preference to
source wheat from countries with official wheat export standards, such as
Argentina, Canada and the US;

ncompromised flour and
dough performance due to the blending of wheat varieties to meet ASW or APW
grade;

nimproved access to general
information about Australian wheat stock levels; and

na ‘substantial gap in
technical support provided by Australia compared to the USA and Canada’. WEA
observed that the USA has been offering technical services to mills receiving
Australian wheat, ‘a clear example of the USA seeking to increase its market
share.’[28]

2.27The Senate Standing Committee on Rural and Regional Affairs and Transport
also reported on Operational Issues in Grain Export Networks in April
2012. Findings of the Committee included:

nFollowing the
discontinuation of the single desk model, ‘the industry was left with natural
monopolies or near monopolies centred on different geographical areas;’[29]

nUncertainty
surrounding the development of a future voluntary code of conduct, in terms of
its adequacy and scope, based on evidence provided by the ACCC;[30]

nEvidence from
Viterra, which pointed out that a shortage of transport infrastructure at peak
times ‘has meant an escalation in road freight prices as marketers endeavour to
get grain from up-country to port’;[31]

nVariation of storage
costs charged by exporters, which some witnesses attributed to concentrated market
power.[32]

2.28The Senate Committee also raised the idea of appointing an industry
ombudsman.[33]

2.29A South Australian parliamentary committee is currently inquiring into
the grain handling industry. In its submission to this Committee, Chairman
Geoff Brock MP stated that although the committee had yet settled upon
recommendations, ‘the principles that underpin deregulation of wheat export
markets are generally supported’. However, the submission also stated that
evidence indicates support for retaining WEA and ‘we are not convinced that the
proposed legislation provides sufficient control of access to port facilities
and services.’[34]